Coca Cola 2005 Annual Report Download - page 16

Download and view the complete annual report

Please find page 16 of the 2005 Coca Cola annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 142

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142

addition, we are exposed to adverse changes in interest rates. When appropriate, we use derivative financial
instruments to reduce our exposure to interest rate risks. We cannot assure you, however, that our financial risk
management program will be successful in reducing the risks inherent in exposures to interest rate fluctuations.
We rely on our bottling partners for a significant portion of our business. If we are unable to maintain good
relationships with our bottling partners, our business could suffer.
We generate a significant portion of our net revenues by selling concentrates and syrups to bottlers in which
we do not have any ownership interest or in which we have a noncontrolling ownership interest. In 2005,
approximately 83 percent of our worldwide unit case volume was produced and distributed by bottling partners
in which the Company did not have controlling interests. As independent companies, our bottling partners, some
of which are publicly traded companies, make their own business decisions that may not always align with our
interests. In addition, many of our bottling partners have the right to manufacture or distribute their own
products or certain products of other beverage companies. If we are unable to provide an appropriate mix of
incentives to our bottling partners through a combination of pricing and marketing and advertising support, they
may take actions that, while maximizing their own short-term profits, may be detrimental to our Company or our
brands, or they may devote more of their energy and resources to business opportunities or products other than
those of the Company. Such actions could, in the long run, have an adverse effect on our profitability. In
addition, the loss of one or more major customers by one of our major bottling partners, or disruptions of
bottling operations that may be caused by strikes, work stoppages or labor unrest affecting such bottlers, could
indirectly affect our results.
If our bottling partners’ financial condition deteriorates, our business and financial results could be affected.
The success of our business depends on the financial strength and viability of our bottling partners. Our
bottling partners’ financial condition is affected in large part by conditions and events that are beyond our
control, including competitive and general market conditions in the territories in which they operate and the
availability of capital and other financing sources on reasonable terms. While under our bottlers’ agreements we
generally have the right to unilaterally change the prices we charge for our concentrates and syrups, our ability
to do so may be materially limited by the financial condition of the applicable bottlers and their ability to pass
price increases along to their customers. In addition, because we have investments in certain of our bottling
partners, which we account for under the equity method, our operating results include our proportionate share
of such bottling partners’ income or loss. Also, a deterioration of the financial condition of bottling partners in
which we have investments could affect the carrying value of such investments and result in write-offs.
Therefore, a significant deterioration of our bottling partners’ financial condition could adversely affect our
financial results.
If we are unable to renew collective bargaining agreements on satisfactory terms or we experience strikes or work
stoppages, our business could suffer.
Many of our employees at our key manufacturing locations are covered by collective bargaining agreements.
If we are unable to renew such agreements on satisfactory terms, our labor costs could increase, which would
affect our profit margins. In addition, strikes or work stoppages at any of our major manufacturing plants could
impair our ability to supply concentrates and syrups to our customers, which would reduce our revenues and
could expose us to customer claims.
Increase in the cost of energy could affect our profitability.
Our Company-owned bottling operations and our bottling partners operate a large fleet of trucks and other
motor vehicles. In addition, we and our bottlers use a significant amount of electricity, natural gas and other
energy sources to operate our concentrate and bottling plants. An increase in the price of fuel and other energy
14